Investment Objective:

Save enough to purchase a first home in 5 years, and establish a retirement account that starts Tanesha on her way to retirement at age 65.

Investor Profile: Young Professional

Tanesha Young (age 25) is a native of Milwaukee, Wisconsin, and has just landed her first professional position for a major manufacturer in Pittsburgh, PA as a supervisor in its finishing plant. With a starting annual salary of $60,000, her prospects look great. She is expecting rapid advancement with raises of 5% per year, and a target bonus of 30% per year (payable at the end of each year). Her first impressions of Pittsburgh are very favorable, so she plans to settle down there for the foreseeable future.

Tanesha would like to start saving for a home, with a target purchase date 5 years from now. She particularly likes the South Fayette area. With its good schools and number of young professionals locating in the area she believes such a home purchase would be a great investment. She intends to put 20 percent down on her new home to avoid PMI (private mortgage insurance). Friends have advised her to have ready cash available of 5% of the purchase price to cover closing costs and incidental expenses to make the home her own.

She doesnt want to purchase this home at the expense of building toward her retirement. She is committed to contributing 4% of her pre-tax income to the companys 401K, with the company matching her contribution annually. Tanesha is curious as to what nest egg these modest contributions provide when she retires at age 65.

[NOTE: assume that you can determine the investment selection in Taneshas 401K portfolio.]

1. What do you expect to be the risk profile for Ms. Young (hint: what do you anticipate her Vanguard survey profile to be?)? If she gets a house for 250k, she would need to put down around 45k if she is trying to save, that would be using a conservative port
2. How do you approach sizing the amount that Ms. Young would need to save/invest to meet her home purchase objective?
3. What do you recommend she invest in to meet this goal?
4. Are we missing any other considerations before presenting our proposal to Ms. Young?